British Energy last night appeared close to agreeing a £12bn takeover by EDF after the French firm agreed to sweeten its bid.

An offer to share a larger slice of future earnings with investors was expected to clinch the takeover plan with the backing of ministers, said sources close to the deal. The government owns 36% of British Energy and is understood to be near to signing a deal after Invesco, the fund management group with a 15% holding, withdrew its threat to block the plan.

Invesco refused to comment on the situation, but sources said that though the parties had yet to agree the details of the takeover, little stood in the way of EDF, British Energy and the government finalising terms within a matter of weeks.

Only last month Invesco favoured a rival plan for a merger with Centrica, the owner of British Gas, with Invesco having voiced concern that the French utility's bid failed to value the UK nuclear operator properly.

EDF agreed a 765p-a-share cash offer for British Energy in July, but the bid was rejected at the last minute by its two largest private-sector shareholders: by Invesco and also by M&G, which owns 7% of the company. Discussions in recent weeks have focused on a rival plan to merge British Energy with Centrica. Invesco, which also owns 5% of Centrica, believed Centrica placed a higher value on the shares.

At the time Neil Woodford, head of investments at Invesco, said: "A combination of British Energy and Centrica solves the problems facing both companies today. Together they can work out a joint venture with EDF to build nuclear sites."

However, industry sources said Woodford had in recent days switched sides to back the EDF deal. A revision by EDF of the proportion of earnings paid to investors in the future is understood to have a played a key role. A 25% fall in the oil price, which makes EDF's cash offer look more generous, was another factor.

EDF has said it remains committed to building nuclear generators in Britain but it remains unclear whether the UK government has the appetite to confront the anti-nuclear lobby and back plans for more power stations. Ministers, including prime minister Gordon Brown, have signalled their intention to include nuclear in their energy plans, but without making any concrete commitments

Centrica has been prevented from having direct talks with EDF, but is expected to accept an offer for a 25% share in the merged company should EDF clinch the takeover.

The British firm is keen to become involved in nuclear power and had looked at the prospect of an all-share offer for British Energy, but the proposals were put on ice when the EDF bid emerged. The government preferred the EDF bid because it wanted cash rather than shares.

Last month, British Energy blamed lower output and the higher cost of remedial work at two nuclear stations for a fall in profits from £253m to £129m in the three months to the end of June, the first quarter of its financial year. But the company said it was encouraged that the role for nuclear new-build within Britain's energy policy was now firmly established.

British Energy owns eight nuclear power stations and one coal-fired plant. Problems at a number of the nuclear plants have forced it to cut output, although the company claims to have made "good progress" in resolving the issues that have dogged the plants.

Backstory

British Energy was valued at £1.5bn when privatised in 1996. Four years later it was hugely loss-making. A government bailout salvaged the owner of Sizewell B and 11 other reactors, and in the past two years it has made profits in excess of £800m. EDF wants to use its know-how to build reactors in the UK, and BE's sites offer the best prospect, especially when each new reactor is likely to bring opposition from environmentalists and residents.